Lawrence Eagles Head, Oil Industry & Markets Division

Transcription

1 OECD/International Transport Forum Roundtable Prices Demand Developments Uncertainties Lawrence Eagles Head, Industry & s Division lawrence.eagles@iea.org g - Paris, November 15-16,

2 Nearing $100, but why? $/bbl Benchmark Prices 45 Jan 07 Mar 07 May 07 Jul 07 Sep 07 NYMEX WTI Mth1 Dated Brent Dubai Mth1 +$80 oil caused by OPEC, low stocks, refining, spare capacity or funds?

3 Nearing inflation-adjusted highs 3 Source: IEA

4 Stock price models broke down in Modeling the oil price Brent Forecast on stocks Spare + Upgrading Specu ulation or bad model ling? 0.00

5 No single cause of high prices Investment costs Service sector Engineering Equipment Commodities Funds Product supply Demand growth Supply growth Structure of demand growth Marginal cost of supply Crude prices Environmental regulations Geopolitics Upstream capacity Crude grade availability OPEC policy Crude and product stocks Refining capacity OECD/IEA -

6 OECD industry stocks down 29.5 mb in Aug, maybe off another 20.5 mb in Sep mb OECD Europe Industry Crude Stocks Jan Mar May Jul Sep Nov Jan Range yr Average 2006 mb OECD North America Industry Crude Stocks 360 Jan Mar May Jul Sep Nov Jan Range yr Average 2006 mb 200 OECD Pacific Id Industry Crude St Stocks Jan Mar May Jul Sep Nov Jan Range yr Average 2006 mb OECD Id Industry Crude St Stocks 1,025 1, Jan Mar May Jul Sep Nov Jan Range yr Average 2006 Falls have been predominantly in crude over past few months Significant regional variations Counter-seasonal 3Q stockdraw, 4Q kb/d Source: IEA

7 Forward demand cover falls below average days Europe 57 Jan Mar May Jul Sep Nov Jan Range year Average 2006 days North America Jan Mar May Jul Sep Nov Jan Range year Average days Pacific Jan Mar May Jul Sep Nov Jan Range year Average Source: IEA days OECD Total Jan Mar May Jul Sep Nov Jan Range year Average OECD forward demand cover fell to 52.8 days in September, below fiveyear average European and Pacific cover is particularly low

8 pushing structure towards backwardation $/bbl 2 OECD stock cover compared to average vs. Brent time spread Days 6.0 Contango 0 Backwardation OECD stock cover: Diff to Rlg 5yr Av (RHS) ICE Brent M2 M1 8 Source: IEA

9 Demand growth seen in 2008, despite high oil prices Global Demand Growth 2006//2008 thousand barrels per day Europe FSU North America Middle East Asia Latin America Africa Global Demand Growth (mb/d) % % % 9 Growth seen in most major regions Non-OECD: Asia demand accounts for 45%, and the Middle East for 18%

10 Price effects starting to show Europe dominated by weather bounce back OECD Europe: Demand by Driver, Y-o-Y Chg Transportation Heating mb/d Power Generation Other Total Demand (0.2) (0.4) (0.6) (0.8) (1.0) kb/d Q05 3Q05 1Q06 3Q06 1Q07 3Q07 Monthly Additions to German Consumer Heating Stocks 1Q08 Jan Apr Jul Oct Jan year average 3Q08 OECD Europe: Demand by Driver, Y-o-Y Chg Transportation Heating mb/d Power Generation Other Total Demand (0.1) (0.2) (0.3) (0.4) (0.5) % German End User Heating Stocks Tanks % full Jan Apr Jul Oct Range year avg 2006

11 Transportation growth seen slowing but needs sustained high prices OECD NA: Demand by Driver, Y-o-Y Chg mb/d Transportation He ating Pow er Generation Other Total Demand (0.2) (0.4) (0.6) (0.8) (1.0) Q05 mb/d (0.5) (1.0) (1.5) (2.0) 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 OECD: Demand by Driver, Y-o-Y Chg Transportation Heating Power Generation Total Demand Other 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 OECD NA: Demand by Driver, Y-o-Y Chg mb/d Transportation He ating Pow er Generation Other Total Demand (0.2) (0.4) (0.6) mb/d (0.2) (0.4) (0.6) (0.8) (1.0) OECD: Demand by Driver, Y-o-Y Chg Transportation Heating Power Generation Other Total Demand

12 expenditures still not as high as 1980s

13 Circular pressures Lack of structural changes in response to high prices Still plenty of SUVs in the car pool Behavioural changes shift demand at the margin Driving the small car to the shops Public transport more a convenience than cost issue Price response in power generation related to long term price and efficiency benefits, but may not last Tighter gas markets Can t go below zero Short-term demand shifts or other changes? Refinery maintenance Secondary and tertiary stock draws Where demand has been curbed by behavioural changes in response to high prices, it has the potential to bounce back 1

14 Economic cycle key for outcome Institutions not good at forecasting recessions Accommodating fiscal and Subprime Banks and monetary policy Funds Hit More Expensive Credit? House prices Down Job Cuts? Foreclosures Lower Consumer Spending? Weaker Demand?

15 Demand more sensitive to growth than prices mb/d Medium-Term Growth Balance 2.0 +/- 1% GDP Non-OPEC Growth (excl. Biofuels) OPEC NGLs Growth Wo rld Demand Gro wth Low Demand 2 Biofuels Growth OPEC Capacity Growth High Demand $50 rise to start to dent US gasoline growth Fuel oil switching requires heavy long-term investment

16 Demand growth =data uncertainty Average Global Demand Growth /2002-/-2012 / 2012 thousand barrels per day North America Europe FSU Middle East Asia Latin America Africa Avg Global Demand Growth (mb/d) % % % OECD: demand sustained by North America, which will represent 53% of the total by 2012 Non-OECD: Asia demand will account for 47% and the Middle East for 19% of the total

17 Transport demand dominates growth Ideal market for producers mb/d OECD vs. Non-OECD Cumulative Demand Growth by Use OECD - Transportation OECD - Other Non-OECD - Transportation Non-OECD - Other (5) Geographical shift: demand d growth will come from non- OECD countries mostly China and the Middle East Usage shift: growth will be fuelled by transportation fuels Subsidies in non-oecd countries Dieselisation trend, notably in Europe Limited role for biofuels less than 2% of demand by 2012

18 Spare production capacity one factor among many in shaping oil prices Inventory & refining i flexibility also important t mb/d OPEC Effective Spare Capacity Ven/Nig/Ind Tighter than normal inventory cover Iraq OPEC Production incl. Angola (RHS) kb/d 33,000 32,000 31,000 30,000 29,000 28,000 27,000 26,000 25, ,000 Lack of refinery upgrading capacity further diminishes utility of this sub-2 mb/d buffer

19 Cost inflation dampens investment impact (long-term futures prices remain above $80) Source: Resources to Reserve, IEA, Tight service sector causes further cost inflation Call option for speculators/opec? Marginal cost of non-opec production influential l when OPEC producing flat out When spare capacity exists, price OPEC are willing to keep spare capacity off the market is the key

20 Rising costs hamper projects Credit squeeze adds further difficulty to project finance Fixed price tenders increase risks for contractors Uncertainty reflected in bids, pushing costs up further

21 Engineering and Contractor markets stretched Rising costs pressure project timeframes Delays in awarding contracts Increased order times delay projects further

22 Despite constraints we still have growth Key non-opec supply increments Key Non-OPEC Supply Increments /08 Total Biofuels Brazil (excl. boues) biofuels) Caspian Russia US GOM Sudan Australia China Mexico Other US (excl. biofuels) North Sea kb/d Source: IEA

23 Geopolitical risks persist for key OPEC producers Iraq plans to increase export capacity Security risks still high But Sep/Oct surge in Iraqi Supply Capacity based on Offtake (thousand barrels per day) Current Effective Mid-Term Potential Exports via: Ceyhan < Basrah Syria Jordan Basrah-Abadan Domestic Crude Use kb/d 2,500 2, ,500 Ceyhan liftings , Estimated Iraqi Supply Net Production Apr May Jun Jul Aug Sep Production North Production South Re-injection/St. Change Exports Local Use kb/d of Nigeria outages 2008 recovery possible Political and security situation remain uncertain Window for repairs short kb/d Source: IEA Onshore/shallow Deepwater Jan 05 Apr 05 Jul 05 Oct 05 Jan 06 Apr 06 Jul 06 Oct 06 Jan 07 Apr 07 Jul 07

24 Supply-side response limited so far 3.0 mb/d Medium-Term Growth Balance 2.0 +/- 1% GDP Non-OPEC Growth(excl (excl. Biofuels) OPEC NGLs Growth World Demand Growth Low Demand 2 Biofuels Growth OPEC Capacity Growth High Demand Adjusted call on OPEC/stock chg: +5 mb/d by 2012 OPEC spare capacity to fall from 2.5 ->1.5 mb/d

25 Medium-term non-opec supply growth still there v v % of net non-opec growth comes from, albeit slowing, FSU Brazil deepwater, Canadian oilsands, GOM & global biofuels also rise Mexico & North Sea see major decline Europe N. America FSU L.America Mid East/Africa Asia Plus OPEC NGL Total non-opec Supply Growth 3270 kb/d (1.4%pa) kb/d (1.1%pa) kb/d (1.0%pa)

26 Above-ground risks exceed belowground risks - currently Reserve risk Accelerating decline Complex reservoirs BELOW- GROUND Weather FORCE MAJEURE Rebel attacks Industrial unrest Net impact is the same (lower output & higher costs) Access restrictions Project complexity SECTOR MATURITY Slower capacity expansion HOST GOVERNMENT Fiscal changes Ageing infrastructure & outages Tight drilling & service capacity INDUSTRY CYCLE Labour, & raw material shortage Pipeline delays Environmental regulation but at least some above ground risks are reversible? 2

27 Non-OPEC net decline averages 4.6% pa a hugely important supply variable mb/d Net Decline Rate for OPEC & Non OPEC Supply OPEC Capacity -3.2% pa -4.6% pa Non-OPEC Supply mb/d cumul Net Change Gross Additions Net Decline 6.00% 7.00% Impact of Varying Net Decline on 2012 Non OPEC Supply 4.00% 3.00% 2.00% 5.00% Globally, 3 mb/d needs to be added to capacity just to keep production steady Sensitivity on non-opec side is the difference between an OPEC call of 31, 37 or 42 mb/d in

28 No imminent resource scarcity: but supply response to high prices is slow Company planning prices rising partly reflecting higher cost base USD/b (Brent) oil-company "planning prices" But access constraints, t industry bottlenecks, financial factors & competing calls on capital curbing price elasticity of supply Delays are endemic source: SG Equity Research, SG Commodities Research, IEA 2

29 Global refining industry -substantial growth Crude distillation capacity investment thousand barrels per day North America 1307 Europe 274 Middle East 2523 FSU 283 China 2302 OECD Pacific 274 Asia Latin America Africa Middle East, China & Other Asia are 2/3 rds of the total increase OECD 1.8 mb/d, of which North America 1.3 mb./d 274kb/d linked to new upgrading units in Spain, Greece & Hungary

30 Strategic investment drives growth CDU capacity greater than Crude Distillation Capacity Additions mb/d demand 2.5 growth OECD FSU CHINA ASIA M IDDLE EAST ROW Growth is largely reliant on a few key countries Cost pressures continue to affect investment economics and timing Large proportion of projects vulnerable to margin cycle and future returns

31 Upgrading investment adds flexibility mb/d 2.0 Upgrading Capacity Additions Hydrocracking coking FCC RFCC Visbreaker Global refining system will benefit from addition of further upgrading capacity This will boost heavy sour crude processing ability Expansion focused on the addition of hydrocracking and coking capacity

32 Conclusion Prices may be starting to impact OECD transportation demand But expenditure not back to the highs of the 1980s Economic growth to continue to drive demand, particularly in Asia and Middle East Demand-side data uncertainties Lack of data reporting from key countries JODI making strong inroads Still lack of stock data Medium-term projections show lack of cyclical activity Price Policy shifts, geopolitics Lack of supply side response (so far) to high oil prices Cost inflation, service sector constraints, access, lagged company planning prices Supply-side data uncertainties Lack of internationally adopted standards for reporting/classification "Political" reporting of reserve and production levels Lack of field-by-field data for key producing countries Segregation and conversion factors Biofuels production reporting: still in its infancy Supplies currently being constrained by OPEC Price does not reflect marginal cost of supply Spare capacity usable Considerable investment in refinery capacity New capacity and upgrading But investment sensitive to cost overruns Bar recession, little reason to expect oil prices to return to pre-2004 prices